01—Abstract
Summary
Summary of the 10-K filed March 31, 2009. Cited figures are marked; the original filing is the authoritative source.
TJX Companies' fiscal 2009 (53 weeks ended January 31, 2009) was a solid year despite a severe retail downturn.
Net sales rose 4% to $19.0 billiona and diluted EPS from continuing operations increased 24% to $2.08, helped by a $30.5 million pre-tax credit to the Computer Intrusion reserve and a 53rd week worth an estimated $0.09 per share. Same store sales grew only 1%, with Marmaxx (T.J. Maxx and Marshalls) flat, and the second half was hurt by the recession and a sharp strengthening of the U.S. dollar against the Canadian dollar and British pound.
Pre-tax margin improved to 7.6% from 6.9%, and consolidated average per-store inventories fell 6%, reflecting leaner buying close to need. Cash generation remained strong, with operating cash flow of $1.15 billionb and capital expenditures of $583 million, leaving healthy free cash flow. TJX returned capital through $741 million of buybacks (24.0 million shares) and $177 million of dividends, and the balance sheet was de-levered as the $1 billion repurchase program was completed.
However, management is clearly in a defensive posture for fiscal 2010: it plans for negative low-single-digit same store sales, targets up to $150 millionc in expense reductions, cuts capital spending to about $450 million, reduces store openings to 64 net new stores, and limits buybacks to roughly $250 million. The Computer Intrusion litigation is largely behind the company, with the remaining reserve at $42.2 million, although a 41-state Attorneys General investigation and a remanded Financial Institutions case remain open.
For investors, the key questions are whether off-price traffic gains can convert into comparable-store growth as consumers trade down, whether the Canadian and European segments can absorb currency headwinds to merchandise margins, and whether HomeGoods' margin compression (segment margin down to 2.7%d from 5.1%) proves temporary. The company's underlying franchise, with over 2,600 stores and an opportunistic buying model, remains intact, but near-term earnings growth is likely to be muted.
02—Key points
Key Highlights
- Net sales rose 4% to $19.0 billion; same store sales grew just 1% on a 52-week basis, with the 53rd week adding about 1% to sales.
- Diluted EPS from continuing operations was $2.08, up from $1.68, including a $0.04 benefit from a Computer Intrusion reserve reduction and an estimated $0.09 benefit from the 53rd week.
- Pre-tax margin improved to 7.6% from 6.9%, while the 2.5-point-plus gap between segments reflects weakness at HomeGoods (segment margin 2.7%, down from 5.1%) offset by Marmaxx at 9.3% and Canada at 11.0%.
- Strong cash generation: operating cash flow of $1.15 billion and capital expenditures of $583 million; $741 million was spent on repurchasing 24.0 million shares and $177 million on dividends.
- Management is guiding conservatively for fiscal 2010, planning negative low-single-digit same store sales, up to $150 million in expense cuts, leaner inventories, and roughly $450 million of capex.
- Computer Intrusion reserve stands at $42.2 million, down from $117.3 million, with the Customer Track settlement now final and the Financial Institutions Track partially revived on appeal; a 41-state AG investigation remains open.
- Store growth is slowing to 64 net new stores in fiscal 2010 (about 2% of the base), versus 5% growth in fiscal 2009, with the largest increases at T.K. Maxx in Germany and A.J. Wright.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 31, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $19.00B$18.34B | +3.6% |
| SG&A Expenses | $3.14B$3.00B | +4.6% |
| Interest Expense | $38.12M— | — |
| Net Income | $880.62M$771.75M | +14.1% |
| EPS (Basic) | $0.53$0.43 | +20.7% |
| EPS (Diluted) | $0.50$0.41 | +20.5% |
| Shares Outstanding (Basic) | 1.68B1.77B | −5.4% |
| Shares Outstanding (Diluted) | 1.77B1.87B | −5.5% |
05—Questions
Frequently Asked Questions
How did TJX perform in fiscal 2009 despite the recession?
TJX grew net sales 4% to $19.0 billion and increased diluted EPS from continuing operations to $2.08 from $1.68. Growth came mainly from new stores (about 4 points) and the 53rd week, while same store sales rose only 1%. Customer traffic was up across most divisions, but the average transaction value declined. Currency translation was a 2-point drag on sales.
Why did the company's margins hold up in a weak retail environment?
Pre-tax margin rose to 7.6% from 6.9%, aided by the lower Computer Intrusion charge (a $31 million credit versus a $197 million charge in fiscal 2008). Merchandise margins held up as TJX bought close to need, operated with leaner inventories and avoided promotional markdowns. Those gains were partly offset by occupancy and buying cost deleverage on the low same store sales increase.
What are the biggest risks for investors heading into fiscal 2010?
The main risks are a prolonged consumer slowdown that hurts traffic and same store sales, further U.S. dollar strength that compresses Canadian and European merchandise margins, and HomeGoods' continued weakness tied to the housing market. Additional risks include possible litigation or regulatory outcomes from the Computer Intrusion, including the open 41-state AG investigation, and the possibility that the $42.2 million reserve proves insufficient. Pension funding needs also rose after weak plan asset performance.
How is TJX returning capital to shareholders, and will that continue?
In fiscal 2009 TJX repurchased 24.0 million shares for $741 million and paid $177 million in dividends. The $1 billion repurchase program is now complete, with $745 million still authorized under the newer program. Management plans to be more conservative in fiscal 2010, targeting only about $250 million of buybacks, while the quarterly dividend is expected to remain at $0.11 per share.
06—Continue